Mr.  Brown's 
Experience 


GIFT  OF 
Prof.  Frederic  Bioletti 


MR.    BROWN'S 
EXPERIENCE 


BY  HY.  R.  WOHLBRS 


1912 
GUARANTY    TRUST    COMPANY 

OF    NEW    YORK 
TWENTY-EIGHT   NASSAU   STREET 

FIFTH  AVENUE  BRANCH  LONDON  OFFICE 

FIFTH  AVENUE  AND  43RD  STREET  33  LOMBARD  STREET,  E.  C. 

STANDARD    BRANCH 
25  BROAD  ST. 


GIFT  OF 


Copyright,  1912 

by 

Guaranty  Trust  Company 
of  New  York 


CONTENTS 

See  Pages  47  and  48  for  Subject  Index. 


CHAPTER  PAGE 

I.  CHECKING  ACCOUNTS  7 

II.  HOUSEHOLD  ACCOUNTS    11 

III.  SAFEGUARDING  SECURITIES  13 

IV.  MONEY  FOR  TRAVELERS  15 

V.  LONDON  OFFICE 18 

VI.  LOANS  20 

VII.  FOREIGN  DEPARTMENT  22 

VIII.  EXEMPTION  OF  TAX  ON  BONDS 27 

IX.  COLLATERAL  LOANS 28 

X.  BOND  DEPARTMENT 30 

XI.  TRUSTEE  AND  EXECUTOR..  40 


MI27503 


CHAPTER  I. 

CHECKING  ACCOUNTS. 

MR.  JOHN  BROWN,  senior  member  of  the 
firm  of  Brown  &  Company,  was  convers- 
ing with  a  friend  at  luncheon  one  day 
on  the  subject  of  bank  accounts.     When  the 
matter  of  interest  came  up,  the  friend  was  very 
much  surprised  to  learn  that  Mr.  Brown  had 
been  keeping  his   account   with   an  institution 
which  allowed  him  no  interest. 

"But,"  said  Mr.  Brown,  "I  always  thought  Interest 
the  first-class  banking  institutions  were  loath  to  on 
pay  interest. "  Accounts 

"The  fact  is,"  answered  his  friend,  "that 
they  are  not.  The  interest  allowed  is  governed 
more  or  less  by  the  money  market  conditions. 
If  the  banks  are  unable  for  any  great  length  of 
time  to  loan  out  their  money  at  a  favorable  rate, 
they  of  course  cannot  allow  much  interest. 
However,  a  fixed  rate  is  customarily  agreed 
upon  when  opening  an  account." 

"Where  do  you  keep  your  account,  may  I 
ask?" 

"I  am  never  reluctant  to  answer  that.  I 
keep  it  at  the  Guaranty  Trust  Company.  I've 
kept  it  there,  well,  I  should  say  about  thirty 
years. ' ' 


M  R  .         PR  OWN'S         EXPERIENCE 


Certificate 

of 

Deposit 


"That's  a  pretty  good  recommendation,"  re- 
marked Mr.  Brown,  "to  say  that  you've  kept 
your  account  with  an  institution  for  thirty 
years.  I  would  be  glad  to  be  introduced  to  that 
company. ' ' 

"And  I  shall  be  happy  to  introduce  you." 
An   introduction    was    accordingly    arranged 
with  the  Treasurer  of  the  Trust  Company,  who 
is  in  charge  of  the  Banking  Department. 

Mr.  Brown  was  quoted  the  ruling  rate  which 
was  being  paid  at  the  time  on  average  daily 
balances  of  $1,000  to  $5,000  and  a  higher  rate 
on  balances  above. 

"What  is  the  balance  you  would  be  likely  to 
carry?"  he  was  asked. 

"About  $25,000." 

"Is  there  any  of  that  that  you  will  not  need 
for,  say,  six  months?  If  there  is,  I  would  sug- 
gest that  you  take  a  Certificate  of  Deposit." 

"What  is  a  Certificate  of  Deposit?" 

"In  this  State  it  is  an  instrument  certifying 
that  the  amount  appearing  on  its  face  has  been 
placed  on  deposit  and  is  redeemable  with  or 
without  interest  at  maturity.  In  other  words, 
it  is  the  receipt  of  the  Trust  Company.  On 
money  so  deposited  on  time,  no  reserve  is  re- 
quired by  the  State  laws,  except  within  thirty 
days  of  maturity,  hence  our  ability  to  earn  and 


8 


MR.         BROWN'S         EXPERIENCE 

thereby  pay  a  better  rate  on  time  certificates  for 
six  months  or  longer. ' ' 

"I  believe  I'll  take  a  Certificate  of  Deposit 
for  $15,000.00,  as  I  will  not  need  that  amount 
for  several  months. " 

Mr.  Brown  was  given  a  signature  card  on 
which  he  was  asked  to  furnish  the  Company 
with  specimens  of  the  authorized  signatures  of 
the  members  of  his  firm.  He  had  this  filled  out 
in  due  course  and  returned  to  the  Company, 
with  a  cheque  for  $10,000  to  open  the  checking 
account,  and  a  cheque  for  $15,000  for  which 
he  was  to  receive  a  Certificate  of  Deposit,  pay- 
able upon  endorsement  and  presentation  at  ma- 
turity, with  interest,  as  illustrated  on  page  10. 

The  Company  confirmed  by  letter  the  receipt 
of  the  initial  deposit,  advised  that  the  signature 
card  had  been  filed,  that  statements  of  account 
and  vouchers  (the  name  for  paid  cheques)  are 
sent  to  depositors  at  the  end  of  each  month,  and 
interest  is  credited  semi-annually  in  the  months 
of  June  and  December. 


MR.        BROWN'S        EXPERIENCE 


CD 

o: 
c 


10 


CHAPTER  II. 

HOUSEHOLD  ACCOUNTS. 

ONE  evening  Mrs.  Brown  confessed  at  home 
her  fear  that  she  would  have  to  pay  a 
bill  the  second  time  because  she  seemed 
to  have  lost  the  receipt.     A  search  was  made 
and,  happily,  the  receipt  was  found.    This  pre- 
sented an  opportunity  to  bring  up  a  subject  of 
importance  to  every  householder. 

"I  think  it  would  be  a  good  idea  for  you  to 
carry  a  draft  account  with  a  Trust  Company/' 
said  Mr.  Brown.  "By  doing  so,  you  can  pay 
your  bills  by  cheques.  These  cheques  must  be 
endorsed  by  the  payee,  and  such  endorsements 
are  equivalent  to  receipts.  If  you  lose  your  re- 
ceipt, you  can  always  produce  the  cheques  (or 
vouchers)  with  the  endorsement  as  evidence, 
and  save  yourself  all  concern." 

The  idea  appealed  to  Mrs.  Brown  as  a  first- 
class  one,  of  course,  and  she  asked,  "Where  shall 
I  open  the  account?" 

"I  have   just   opened  one  at   the   Guaranty  Uptown 
Trust  Company.    I  understand  that  their  Fifth  Branch 
Avenue  Branch  is  near  by,  which  makes  it  con- 
venient for  uptown  customers.    I'll  call  up  their 
office  in  the  morning  to  tell  them  that  you  in- 
tend to  call  at  the  Branch." 

11 


MR.        BROWN'S        EXPERIENCE 

He  did  so,  and  in  answer  to  his  inquiry,  he 
was  informed  that  the  Main  Office  stood  ready 
to  receive  deposits  during  regular  business  hours 
for  the  credit  of  the  Branch  depositors.  Mr. 
Brown  stated  that  he  wished  to  deposit  a  sum 
of  money  for  the  credit  of  Mrs.  Brown  at  the 
Branch,  and  he  was  told  that  upon  receipt  of 
it  the  Main  Office  would  notify  the  Branch  im- 
mediately so  that  if  the  account  were  interest* 
bearing,  no  time  would  be  lost.  He  was  in- 
formed, also,  that  customers  of  the  Branch  Of- 
fice could  cash  cheques  at  the  Main  Office,  if  they 
desired  to  do  so.  He  was  requested  to  have  Mrs. 
Brown  furnish  specimens  of  her  signature,  which 
was  done. 

It  is  needless  to  say  that  Mrs.  Brown  was 
pleased  with  the  new  arrangement. 


12 


CHAPTER  III. 

SAFEGUARDING  SECURITIES. 

TE  busy  season  over,  and  with  the  ap- 
proach of  summer,  Mr.  Brown  contem- 
plated a  trip  to  Europe. 

As  he  was  a  very  particular,  cautious  gentle-  Care  and 
man,  he  never  allowed  anyone  but  himself  to  Custody  of 
handle    his    investments.      However,    he    had  Securities 
learned  to  have  faith  in  the  integrity  of  his 
Trust  Company,  and,  accordingly,  he  informed 
the  Trust  Department  of  his  contemplated  trip 
and  asked  if  they  would  take  care  of  his  securi- 
ties for  him  while  he  was  abroad  and  attend  to 
the  collection  of  bonds  and  coupons  which  were 
maturing. 

"To  take  temporary  care  of  securities  is  one 
of  the  important  functions  of  our  Company," 
he  was  told.  "We  are  custodian  of  many  se- 
curities owned  mostly  by  people  who  are  trav- 
eling or  who  reside  outside  of  the  city  of  New 
York." 

"What  charge  do  you  make?" 

"Well,  there  is  no  fixed  charge.  The  cost 
varies  according  to  the  nature  of  the  securities. 
By  that  I  mean  that  if  the  securities  are  stocks, 
we  are  obliged  to  look  after  their  transfer,  en- 
dorsement in  case  of  sale,  dividend  orders,  and 

13 


MR.         BROWN'S         EXPERIENCE 

matters  of  that  sort.  But  if  the  securities  are 
coupon  bonds  we  are  obliged  to  clip  off  the 
coupons,  collect  and  credit  them,  and  take  into 
consideration  the  greater  amount  of  space  which 
bonds  occupy  in  our  vaults.  In  either  event, 
the  charge  we  would  make  you,  as  one  of  our 
customers,  would  be  merely  for  the  labor  in- 
volved, so  that  if  you  will  let  me  know  what 
securities  you  wish  us  to  handle,  we  shall  be 
pleased  to  quote  our  charge/' 

Mr.  Brown  presented  a  list  of  his  holdings 
and  at  the  same  time  asked  what  charge  the 
Company  would  make  for  taking  their  perma- 
nent custody. 

"If  you  wish  to  relieve  yourself  for  all  time 
of  the  bother  of  taking  care  of  your  securities, 
we  will  do  so  at  a  nominal  rate." 

The  rate  was  satisfactory  to  Mr.  Brown  and 
he  informed  the  Trust  Officer  that  his  securities 
would  be  sent  in  the  following  day. 


14 


CHAPTER  IV. 
MONEY  FOR  TRAVELERS. 

MR.  BROWN  was  asked  if  there  was  any- 
thing the  Company  could  do  for  him  in 
connection  with  his  trip,   and  he   an- 
swered  that   he   needed   some    foreign   money, 
whereupon  he  was  introduced  to  the  Foreign 
Department.     He  was  told  of  the  liability  of 
loss  or  robbery  in  carrying  money. 

"Would    you   not    care    to    have    Travelers'  Travelers' 
Cheques  or  a  Letter  of  Credit?"  Cheques 

"No,  I  think  not.  When  I  have  the  cash 
I  escape  the  bother  of  identifying  myself  at  the 
foreign  banks." 

"Let  us  explain,  Mr.  Brown,  that  the  Travel- 
ers' Cheques  issued  by  us  through  the  American 
Bankers'  Association  are  universally  accepted 
and  require  no  personal  introduction.  Your 
identity  is  established  by  a  comparison  of  your 
signature  made  at  the  time  of  purchase  with 
your  countersignature  made  in  the  presence  of 
the  party  cashing  the  cheque." 

"I  am  glad  to  know  that.    What  will  it  cost  Cost 
me?" 

"The  charge  is  one-half  of  1%  paid  when 
you  purchase, — or  ten  cents  on  a  hundred 
dollars." 

15 


MR.         BROWN'S         EXPERIENCE 

"And  how  will  I  know  what  they  are  worth 

in  foreign  money?    Am  I  apt  to  be  cheated? " 

Fixed  Value       ' '  In    this    respect    you    are    especially    saf  e- 

in  Foreign      guarded  by  buying  Travelers'  Cheques.     They 

Money  have  a  fixed  value,  and  you  can  always  see  on 

the  face  of  the  Cheque  the  equivalent  payable 

abroad;   for  instance,   if   the   cheque   calls   for 

$20.00,  you  will  note  that  it  is  redeemable  in 

Great  Britain  at   £4.1.8 

Canada  $20.00 

Germany   Marks  83.30 

France,  Belgium  and  Switzer- 
land   Francs  102.50 

Italy  (Gold)  Lire  102.50 

Norway,   Sweden  and  Den- 
mark   .Kroner  73.39 

Aust.-Hungary Kroner  98.00 

Eussia  Rubles  38.46 

Holland Florin  49.08 

In  all  other  countries,  at  current  rates 

for  foreign  exchange. 

Letter  of  "What  advantage  is  there  in  taking  out  a 

Credit  Letter  of  Credit  ?" 

"There  is  this  advantage,  besides  that  of  pre- 
caution from  loss  or  theft:  that  on  the  money 
deposited  to  your  credit  you  receive  interest, 
which  almost  pays  the  expense  of  the  Letter. 
Money  carried  around  in  the  pocket  does  not 
draw  interest;  if  left  here  it  is  figured  from 

16 


MR.         BROWN'S         EXPERIENCE 

the  date  of  the  deposit  to  the  date  of  presenta- 
tion of  the  draft  against  the  Letter." 

"And  how  do  you  figure  the  cost?" 

"When  a  draft  is  made  against  a  Letter  of  Cost 
Credit  in,  say,  London,  we  of  course  are  im- 
mediately charged  by  the  foreign  Bank  there. 
To  cover  the  cost  of  the  exchange,  etc.,  we 
charge  interest  at  the  rate  of  6%  per  annum 
for  only  fifteen  days,  plus  a  small  commission. 
Assuming  that  you  had  taken  a  credit  for  $2,000 
and  actually  used  only  $1,000,  this  would  figure 
$2.50  interest  plus,  say,  $2.50  commission,  or  a 
total  of  $5.00.  Now,  suppose  the  deposit  which 
you  make  averages  thirty  days  at  the  rate  of, 
say,  2y2%  per  annum,  the  interest  thereon  will 
be  about  $4.17  which,  as  stated  before,  almost 
covers  the  cost  of  taking  out  the  Letter.  You 
are  practically  getting  your  Letter  of  Credit 
free  of  cost;  and  if  the  amount  you  deposit  is 
greatly  in  excess  of  that  actually  used,  the  in- 
terest you  receive  is  correspondingly  increased. * ' 

"You  are  right.    Better  let  me  have  one  thou-  Redemption 
sand  dollars  in  a  Letter  of  Credit,  and  five  hun-  of  unused 
dred  in  Travelers'  Cheques.     By  the  way,  how  Cheques 
do  I  redeem  the  cheques  if  I  have  any  left  when 
I  return?" 

"By  countersigning  them  and  depositing  in 
your  regular  bank  the  same  as  an  ordinary  de- 
posit." 

17 


CHAPTER  V. 
LONDON  OFFICE. 

MR.  BROWN'S  trip  abroad  was  for  both 
business  and  pleasure.  After  transact- 
ing some  business  in  London,  he  in- 
tended to  visit  various  places  on  the  Continent. 
The  question  of  the  financial  status  and  respon- 
sibilities of  some  concerns  with  whom  he  con- 
templated negotiations  were  unknown  to  him, 
and  in  view  of  the  fact  that  the  Guaranty  Trust 
Company  has  a  London  office  (which  fact  he 
noted  from  the  list  of  correspondents  on  his 
Letter  of  Credit)  he  concluded  to  call  there  for 
information.  He  notified  the  Main  Office  of  his 
intention  to  call,  and  was  given  a  letter  of  in- 
troduction to  the  Manager  of  the  London  Office. 
At  the  same  time  he  was  told,  "You  are  invited 
to  have  all  of  your  mail  forwarded  to  you  in 
care  of  our  London  Office." 

Some  days  after  his  arrival  in  London  he 
called  at  the  London  Office,  where  he  was  cor- 
dially received  by  the  Manager,  who  handed  him 
his  mail  that  had  been  forwarded  from  America. 
He  secured  the  information  he  desired  concern- 
ing the  firms  with  which  he  was  negotiating, 
closed  the  deals  in  due  course,  and  eventually 
had  the  London  Office  transfer  by  cable  for  the 

18 


MR.         BROWN'S         EXPERIENCE 

credit  of  his  New  York  office  the  amount  of 
pounds  sterling  he  had  received. 

Grateful  for  the  facilities  which  had  been 
placed  at  his  disposal,  Mr.  Brown  left  the  office 
to  go  on  his  pleasure  trip,  fortified  with  several 
additional  letters  of  introduction  to  various 
bankers  and  other  concerns  on  the  Continent. 


19 


CHAPTER  VI. 
LOANS. 

SOME  time  after  Mr.  Brown  returned  from 
his  European  trip,  he  received  a  notifica- 
tion concerning  his  Certificate  of  Deposit, 
which  he  had  taken  out  nearly  five  months  be- 
fore. 

"We  wish  to  notify  you,"  telephoned  the 
Treasurer  of  the  Guaranty  Trust  Company, 
"that  your  Certificate  of  Deposit  will  mature 
in  the  near  future.  If  you  desire  a  renewal  and 
will  advise  us  prior  to  the  thirtieth  day  before 
maturity,  we  shall  be  glad  to  make  note  of  the 
extension  on  the  face  of  the  certificate.  This 
will  enable  the  deposit  to  run  right  along  with- 
out reserve  until  within  thirty  days  of  the  suc- 
ceeding maturity." 

"I  cannot  agree  to  an  extension,"  replied  Mr. 
Brown,  "for  the  reason  that  the  fall  season  is 
beginning  and  in  my  business  it  means  the  ex- 
penditure and  use  of  more  money  than  I  have 
available.  The  fact  is  I  am  in  the  habit  of 
borrowing  at  this  time  of  the  year  for  our  fall 
purchases.  I  wonder,  by  the  way,  if  your  Com- 
pany would  be  disposed  to  grant  my  firm  some 
of  the  accommodation  we  need  to  carry  us 
through  the  fall?" 

20 


MR.        BROWN'S         EXPERIENCE 

"We  shall  be  glad  to  consider  your  propo-  Basis  of 
sition,"  was  the  reply.    "Let  us  know  how  much  Loans 
you  will  need,  and  bring  us  a  statement  of  your 
firm's  assets  and  liabilities." 

This  was  done,  and  in  view  of  the  fact  that 
Mr.  Brown's  firm  had  a  good  business  connec- 
tion with  the  Company  in  the  past,  that  they 
were  well  rated  by  the  commercial  agencies,  that 
they  were  well  spoken  of  in  the  trade,  and  also 
in  view  of  their  promise  to  maintain  a  deposit 
account  of  at  least  twenty  per  cent,  of  the 
amount  borrowed,  the  loan  Mr.  Brown  desired 
was  made.  Accordingly,  his  firm's  notes  were 
sent  in  for  discount  to  the  Loan  Department  and 
their  account  was  credited  with  the  proceeds. 


21 


B1 


CHAPTER  VII. 
FOREIGN  DEPARTMENT. 

jROWN  &  COMPANY  having  made  their 
fall  purchases,  the  goods  were  shipped 
on  account  of  foreign  sales.  The  terms 
arranged  for  the  payment  of  Brown  &  Com- 
pany's shipments  necessitated  the  drawing  of 
three  kinds  of  drafts.  These  drafts  were  drawn 
for  payment  in  pounds,  francs,  or  marks,  equiv- 
alent to  American  dollars,  and  had  to  be  pre- 
sented abroad. 

Inasmuch  as  Brown  &  Company  had  borrowed 
money  to  pay  for  the  goods,  they  were  anxious 
to  convert  the  value  of  these  drafts  at  once. 

In  order  to  know  the  ruling  rates,  Mr.  Brown 
went  at  once  to  the  manager  of  the  Foreign 
Department  of  the  Guaranty  Trust  Company, 
to  whom  he  had  previously  been  introduced. 

"I  have  some  drafts,"  said  Mr.  Brown, 
" which  I  would  like  to  sell  you." 

' ' What  are  they?" 

Foreign  "Six  thousand  pounds,  sixty  days'  acceptance, 

Bills  on  London.     Also  one  thousand  pounds,  fifteen 

days'  sight,  on  London.    What  rates?" 

"4.84  for  sixty  days,  4.85  for  fifteen." 

The  above  meant  that  Brown  &  Company  had 
made  arrangements  with  a  foreign  concern,  in 
the  case  of  the  sixty  day  draft,  to  send  the 

22 


MR.         BROWN'S         EXPERIENCE 

goods,  draw  on  them  for  the  amount,  and  re- 
ceive payment  sixty  days  after  its  acceptance 
and  the  delivery  of  the  bills  of  lading.  The 
Guaranty  Trust  Company  would  pay  $4.84  for 
each  pound,  send  the  draft  (with  the  bill  of 
lading,  insurance  receipt  and  other  documents 
attached)  to  their  correspondent  in  London, 
who  would  present  it  for  acceptance  and  deliver 
the  documents.  Such  bills  are  familiarly  known 
as  "Commercial  Long  Bills/'  This  bill  was 
called  an  "acceptance"  bill  to  distinguish  it 
from  a  "payment"  bill  which  is  used  when  the 
bill  of  lading  and  other  documents  are  not  de- 
liverable until  payment  of  the  draft  is  actually 
made.  In  the  other  case,  Brown  &  Company 
wished  to  sell  a  "documentary  Commercial 
Sight  Bill"  which  is  used  in  cases  when  docu- 
ments are  attached  when  the  "usance"  (the  time 
to  run)  is  not  over  thirty  days.  The  reason  the 
one  could  be  converted  at  a  lower  price  than  the 
other  is  that  the  longer  a  banker  has  to  wait  for 
the  payment  the  less  he  can  give. 

An  illustration  of  the  Commercial  Long  Bill 
offered  by  Brown  &  Company  is  given  on 
page  24. 

The  Guaranty  Trust  Company,  being  very 
large  dealers  in  foreign  exchange,  were  able  to 
quote  a  close  rate,  which  was  acceptable  to 
Brown  &  Company. 

23 


MR.         BROWN'S         EXPERIENCE 


Si 


1 


l 


t 


B 


•o,       ^ 

Sf          ^ 


§ 


I 

O 


s 


-2 


i 

e 


HO 
S 
S 
C> 

S 


v:    s 

<s>       O 

Z  ^ 


53 


MR.        BROWN'S         EXPERIENCE 

' '  In  addition  to  these  bills, ' '  said  Mr.  Brown,  Clean  Bills 
"I  have  some  drafts  against  which  the  goods 
were  shipped  some  time  ago  and  have  been  re- 
ceived by  the  consignee,  with  whom  I  have  ar- 
ranged to  draw  at  sixty  days.  I  shall,  there- 
fore, be  obliged  if  you  can  arrange  to  let  me 
draw  an  amount  of  Clean  Bills. " 

Brown  &  Company  were  known  to  the  Guar- 
anty Trust  Company  as  one  of  the  best  houses 
in  the  market,  and,  therefore,  were  willingly 
granted  a  line  against  which  they  could  draw 
their  Clean  Bills,  or  bills  without  documents  or 
other  security  attached,  except  the  general  credit 
of  Brown  &  Company,  such  as  is  illustrated 
on  page  26. 

The  foreign  exchange  business  having  been 
transacted  through  the  Foreign  Department, 
Brown  &  Company  were  now  in  receipt  of  funds 
with  which  they  paid  off  their  obligations  in  the 
Loan  Department  of  the  same  Company.  Ac- 
counts were  "squared"  and  then  Mr.  Brown 
again  took  out  a  Certificate  of  Deposit  and,  also, 
made  investments  from  his  surplus  funds. 


25 


MR.        BROWN'S         EXPERIENCE 


o* 

<?  <•? 

1 

^••J                      "^H 

o\        ^       ^o 

^ 
^ 

^ 

^ 

cT      U       & 

^      1     33 

1 

S^            ^>           vj 

0 

^          £^         "^* 

tJ 

I 


•^     ^ 

n      SJ 

^      •>: 


to 


% 


fe 


v2       ^ 


41 


1 


Jii 


s 

fe  I 


§ 


CHAPTER  VIII. 
EXEMPTION  OP  TAX  ON  BONDS. 

IN  line  with  its  general  policy  of  keeping  its 
customers  posted,  the  Guaranty  Trust  Com- 
pany of  New  York  one  day  advised  Mr. 
Brown  that  a  new  law,  with  regard  to  personal 
taxation,  had  been  enacted  by  the  State  of  New 
York  at  its  last  legislative  session.  The  text  of 
the  new  law  and  its  interpretation  were  given  in 
a  pamphlet  issued  by  the  Company  and  a  copy 
of  the  pamphlet  was  handed  to  Mr.  Brown.  On 
reading  the  pamphlet,  he  found  that  bonds  un- 
der the  new  law  can  be  made  exempt  from  per- 
sonal taxation  by  the  payment  of  the  mortgage 
tax  fees,  and  if  stamps  are  attached  to  the  bonds 
at  the  rate  of  ^  to  1%,  they  are  forever  ex- 
empted from  personal  taxation. 

In  order  to  obviate  the  payment  of  a  personal 
tax,  which  amounted  to  almost  two  per  cent, 
every  year  and  which  was  equivalent  to  almost 
one-half  of  the  income  on  the  principal,  Mr. 
Brown  readily  accepted  the  Trust  Company's 
suggestion  that  he  permit  them,  for  a  slight 
compensation,  to  attend  to  the  details  of  secur- 
ing the  exemption. 


27 


THE 
* 
p 


CHAPTER  IX. 

COLLATERAL  LOANS. 

summer  season  was  again  coming  on, 
but  instead  of  going  to  Europe  Mr. 
Brown  decided  to  buy  some  property 
near  the  seashore  on  the  Jersey  coast.  He 
selected  a  desirable  location  and  then  proceeded 
to  have  a  house  built.  The  contractors  submit- 
ted their  plans  and  terms  were  arranged  where- 
by Mr.  Brown  was  to  make  one  initial  payment, 
and  instalments  as  the  work  progressed.  He 
had  invested  his  own  surplus  in  bonds,  so  that 
he  was  compelled  to  look  for  a  loan.  He  ex- 
plained to  the  Guaranty  Trust  Company  that 
he  was  building  and  wanted  to  know  whether 
or  not  the  Company  could  let  him  have  tempo- 
rary accommodation  to  be  secured  by  his  real 
estate. 

"This  Company,"  he  was  told,  "does  not  loan 
against  real  estate  situated  outside  of  the  Bor- 
ough of  Manhattan,  and  then  only  in  such  cases 
where  we  have  trust  funds  for  investment  in 
mortgages  that  comply  with  the  law." 

Loan  against       Knowing,  then,  that  it  was  the  policy  of  his 

Bonds  Trust  Company  not  to  loan  against  real  estate, 

Mr.  Brown  concluded  that  a  very  satisfactory 

way  out  of  the  matter  was  to  secure  a  loan 

28 


MR.         BROWN'S         EXPERIENCE 

against  some  of  his  bonds.  He  again  called  on 
the  Loan  Department,  who  furnished  him,  as  a 
customer,  with  the  amount  of  the  loan  at  a  fair 
rate  of  interest  upon  his  promise  to  maintain  a 
margin  against  it  of  at  least  twenty  per  cent. 
This  Mr.  Brown  was  well  able  to  do. 


29 


CHAPTER  X. 

BOND  DEPARTMENT. 

IN  due  course,  Mr.  Brown  liquidated  his  loan, 
for  his  business  had  flourished  and  he  had 
made  considerable  money.     Part  of  this  he 
wished  to  invest  and,  accordingly,  he  paid  a  visit 
to  the  Bond  Department  of  the  Trust  Company, 
with  the  request  that  he  be  kept  posted  as  to 
any  new  and  choice  investments  the  Company 
had  to  offer. 

Bond  Not  long  afterward,  therefore,  he  received  a 

Offering  letter  from  the  Bond  Department  explaining 
that  in  accordance  with  his  suggestion  they  had 
placed  his  name  on  their  mailing  list  and  were 
at  present  enclosing  a  descriptive  circular  of  a 
railroad  equipment  bond  issue.  These  bonds 
could  be  purchased  at  an  attractive  rate,  and 
further  particulars  could  be  had  on  application. 
Mr.  Brown  called  on  the  manager,  of  whom 
he  wanted  to  know  the  nature  of  equipment 
bonds. 

Equipment         "This  class  of  security,"  said  the  manager, 

Bonds  "constitutes  an  excellent  form  of  investment  on 

account  of  the  great  security  of  principal  and 

interest  combined  with  a  good  return  and  a 

broad  market.     As  its  name  implies,  an  equip- 

30 


MR.         BROWN'S         EXPERIENCE 


New  York  Central  Lines 

Equipment  Trust  Gold  4%'s  of  1912 

Dated  January  i.  1912.  Due  $1,000,000  annually  from  /an.  I.  1913  to  Jan. 

i,  1927,  inclusive. 


Interest  payable  January  r  and  July  I 

nation  with  privilege  of  registratio 
onds  of  $1,000  and  multiples  ther 

Authorized  and  Issued  $15,000,000. 


Coupon  Bonds  of  $1,000  denomination  with  privilege  of  registration  of  principal  and  fully  registered 
bonds  of  $1,000  and  multiples  thereot 


Guaranty  Trust  Company  of  New  York,  Trustee 


Under  the  terms  of  the  agreement  and  lease  (and  the  supplements  thereto)  covering  this 
equipment  trust,  the  following  five  companies  jointly  and  severally  covenant  with  the  Trustee  to  pay 
the  principal  and  semi-annual  dividend  warrants  in  gold  coin : 

The  New  York  Central  &  Hudson  River  Railroad  Company 
The  Lake  Shore  &  Michigan  Southern  Railway  Company 
The  Michigan  Central  Railroad  Company 

The   Cleveland,   Cincinnati,   Chicago  &  St.  Louis  Ry.  Company 
Chicago,  Indiana  &  Southern  Railroad  Company       ' 

It  is  further  provided  that  the  amount  of  certificates  to  be  issued  shall  not  at  any  time  exceed 
90%  of  the  actual  cost  of  equipment  delivered  to  and  held  by  the  Trustee  as  security  for  the 
payment  of  the  principal  of  the  certificates  and  the  semi-annual  dividend  warrants  appertaining 
thereto. 

The  title  to  this  equipment  shall  remain  in  the  Trustee  for  the  benefit  of  the  certificate 
holders  until  all  the  conditions  of  the  equipment  trust  are  fulfilled,  when  title  shall  pass  to  the  com- 
panies in  interest  or  as  they  may  designate.  During  the  life  of  the  agreement  and  lease  the  railroad 
companies  are  obliged  to  keep  this  equipment  in  first  class  condition  and  repair,  to  keep  it  insured 
and  to  make  substitution  for  any  equipment  that  may  be  destroyed. 

For  the  year  ended  Dec.  31, 1911,  the  combined  surplus  after  fixed  charges,  etc.,  of  the  five  com- 
panies named,  amounted  to'  over  $33,000,000.  These  lines  constitute  one  of  the  most  important  rail- 
road systems  in  the  country,  serving  a  prosperous  and  thickly  settled  territory. 


Prices  of  Various  Maturities  upon  application 


Guaranty  Trust  Company 

of  New  York 
28  Nassau  Street,  New  York 

25  Brood  St..  New  York 


31 


MR.         BROWN'S         EXPERIENCE 

ment  bond  is  one  issued  to  provide  funds  with 
which  to  pay  for  new  rolling  stock — cars  and 
locomotives.  The  issues  are  variously  described 
as  car  trust  certificates,  equipment  bonds  or 
equipment  notes." 

"How  long  do  they  run?" 
"Equipment  trusts  are  usually  created  for  a 
period  of  from  ten  to  fifteen  years,  provision 
being  made  for  the  retirement  of  the  principal 
either  by  annual  or  semi-annual  instalments,  or 
by  means  of  a  Sinking  Fund.  In  this  way  the 
holders  of  equipment  bonds  are  fully  protected 
against  any  possible  loss  by  depreciation  of  the 
equipment  pledged,  as  the  estimated  average 
depreciation  of  standard  equipment  is  less  than 
6%  per  annum.  The  amount  of  bonds  issued 
is  usually  from  80%  to  90%  of  the  cost  of  the 
equipment,  and  with  the  retirement  of  the  vari- 
ous maturities  the  margin  of  security  is  con- 
tinually increased." 

How  "How  are  they  issued?" 

Issued  "Equipment  obligations  are  generally  issued 

in  one  of  two  ways: 

"FIRST — Bonds  are  issued  as  a  direct  obliga- 
tion of  the  railroad  company,  and  are  se- 
cured by  a  first  mortgage  upon  the  equip- 
ment, the  title  to  which  is  vested  in  a  trus- 
tee for  the  benefit  of  the  bondholders. 

32 


MR.         BROWN'S         EXPERIENCE 

The  entire  amount  of  equipment  remains 
pledged  until  all  of  the  bonds  have  been 
paid,  when  the  equipment  becomes  the 
property  of  the  railroad  company. 

"SECOND — Under  the  so-called  ' Philadelphia 
Plan'  the  equipment  is  purchased  by  an 
individual,  association  or  corporation, 
which  leases  the  equipment  to  the  railroad 
company  for  a  definite  period  at  a  rental 
equivalent  to  the  interest  and  principal 
of  the  bonds.  The  contract  of  lease  is 
then  assigned  to  a  trustee  which  issues 
its  certificates  of  participation  in  the 
lease.  These  certificates  are  frequently 
guaranteed  by  the  railroad  company. 

"The  unique  position  occupied  by  equipment  Strong 
obligations  is  demonstrated  by  the  fact  that  when  Security 
a  receiver  has  been  appointed  for  a  railroad,  it 
is  the  custom  for  the  payment  of  both  principal 
and  interest  of  equipment  issues  to  be  main- 
tained under  the  authority  of  the  court.  This 
ruling  is  based  upon  the  fact  that  the  value 
of  the  property  is  purely  nominal  if  the  Com- 
pany discontinues  operation  through  lack  of 
equipment.  In  other  words,  the  equipment  is 
to  the  railroad  company  as  the  tool  is  to  the 
mechanic." 

"Do  these  bonds  fluctuate  in  value?" 

33 


MR.         BROWN'S         EXPERIENCE 

Small  "By  buying  the  shorter  maturities  the  chances 

Fluctuation  of  extreme  fluctuation  in  price  are  minimized. 
The  prices  of  other  maturities  have  a  tendency 
to  move  toward  par.  That  is  because  they  sell 
on  a  "basis"  which  means  that  the  discount  (or 
premium  as  the  case  may  be),  the  rate  of  in- 
terest, and  the  length  of  time  the  bond  has  to 
run,  are  taken  into  consideration.  For  instance, 
if  a  5%  bond  has  three  years  to  run  and  it  sells 
at  98%  (or  $980),  it  means  that  if  you  hold  the 
bond  until  it  is  paid  you  will  receive  as  interest 
during  that  time  $150,  as  well  as  $20  in  addition 
to  the  $980,  making  the  total  income  $170,  which 
is  a  net  return,  or  a  basis,  of  about  5%%.  Now 
let  us  suppose  that  the  basis  changes,  as  it  does 
with  the  condition  of  the  money  market.  If  the 
money  market  is  low,  bonds  of  this  character  will 
usually  sell  on  a  lower  basis  by  reason  of  the 
fact  that  their  yield  creates  a  greater  demand. 
If  you  should  sell  on  a  5%  basis  after  holding 
it  a  year,  your  net  return  would  be  7%.  On 
the  other  hand,  if  sales  of  the  bonds  should  be 
made  to  take  advantage  of  a  higher  prevailing 
rate  in  the  money  market,  the  basis  would  ordi- 
narily be  higher.  This  does  not  mean,  how- 
ever, that  there  would  be  an  actual  loss  if  the 
bonds  were  sold  at,  say,  a  6%  basis,  which  is 
$980  for  the  bond  having  two  years  to  run,  but 
simply  means  that  your  investment  has  netted 

34 


MR.         BROWN'S         EXPERIENCE 

you  only  5%  interest  for  the  year.  The  latter 
is  an  exceptional  case  presented  merely  for  illus- 
tration. If  the  bond  were  held  a  year  and  then 
sold  at  the  same  basis  (5%%)  the  price  received 
would  be  approximately  $987  and  interest  of 
$50  without  the  loss  of  either  principal  or  in- 
terest. " 

"In  case  I  wanted  to  sell,  could  a  ready  mar-  Salability 
ket  be  found?" 

"While  equipment  obligations  are  not  gener- 
ally listed  on  any  exchange,  the  demand  for 
standard  issues  is  constant,  and  sale  can  usually 
be  made  without  difficulty.  This  Company 
makes  a  specialty  of  this  class  of  security  and 
we  are  always  ready  to  make  bids  as  well  as 
offerings  on  standard  equipment  issues." 

Mr.  Brown  stated  that  although  he  might  use  Long-time 
some  short-term  equipments  as  a  reserve  fund,  Bonds 
he  desired  to  invest  some  of  his  money  in  long- 
term  bonds  for  two  reasons:  first,  because  it 
would  save  him  the  trouble  of  reinvesting  and 
second,  because  conditions  at  the  time  of  rein- 
vesting might  be  unfavorable  for  securing  a  high 
return  of  interest.  He  was  advised  as  to  the 
different  forms  of  securities,  such  as  mortgage, 
debenture,  sinking  fund,  and  other  bonds  of  rail- 
roads and  industrial  corporations,  as  well  as  how 
to  select  them.  He  was  told  that  business  men 
require  bonds  that  have  a  prospect  of  apprecia- 

35 


MR.         BROWN'S         EXPERIENCE 


tion  in  price,  a  favorable  rate  of  income,  and  are 
readily  convertible  into  cash.  Individuals  de- 
pendent upon  income  from  investments  are  ad- 
vised to  purchase  bonds  which  yield  a  fair  re- 
turn and  whose  principal  and  interest  are  secure. 
For  reserve  funds  of  firms  and  corporations, 
security  of  principal,  ready  marketability,  and 
minimum  fluctuations  are  the  most  desirable 
features. 

What  Con-  "There  are  five  chief  points  to  be  considered 
stitutes  a  in  the  selection  of  securities  for  investment, "  he 
good  was  told.  "They  are 

Investment  " FIRST:  Security  of  principal  and  interest, 
or  the  assurance  of  receiving  the  principal 
when  due; 

"SECOND:    Bate  of  income,  or  the  net  return 
which  is  realized  on  the  actual  amount  of 
money  invested; 
' '  THIRD  :    Convertibility  into  cash,  with  which 

is  included  availability  as  collateral ; 
"FOURTH:    Minimum  fluctuation,  or  stability 

of  market  price; 

"FIFTH:  Prospect  of  appreciation  in  value. 
6 1  These  five  qualities  are  present  in  different  de- 
grees in  every  investment,  and  the  scientific 
investor  always  selects  securities  in  accordance 
with  the  qualities  upon  which  he  desires  to  place 
emphasis.  The  average  investor  does  not  thor- 
oughly realize  that  a  higher  degree  of  one  qual- 

36 


MR.         BROWN'S         EXPERIENCE 

ity  implies  a  lower  degree  of  other  qualities. 
He  may  have  a  general  impression  that  a  se- 
curity which  pays  unusually  well  is  likely  to  be 
somewhat  unsafe,  but  he  rarely  applies  the  same 
reasoning  to  other  characteristics.  For  example, 
it  is  quite  common  to  find  a  private  investor 
who  wishes  to  make  a  permanent  investment, 
and  has  no  thought  of  reselling,  buying  bonds 
which  possess  in  a  high  degree  the  quality  of 
convertibility.  From  his  point  of  view,  this  is 
pure  waste.  A  high  degree  of  convertibility  is 
only  obtained  at  the  sacrifice  of  some  other  qual- 
ity, usually  rate  of  income.  If  this  investor 
more  thoroughly  understood  this  point,  he  would 
buy  a  less  active  bond  of  equal  safety  and  higher 
yield,  thus  increasing  his  income  at  the  expense 
of  a  quality  which  he  does  not  need." 

"It  is  wise,"  the  manager  added  at  length,   Diversify 
"for  an  investor  to  distribute  his  funds  among  your 
the  securities  of  several  classes  of  corporations,  Investments 
rather  than  concentrate  on  one." 

"So  then,"  he  was  asked,  "it  would  not  be 
well  to  place  all  of  my  funds  in,  say,  well  se- 
lected bonds  of  coal  companies?" 

"No.  While  such  bonds  may  be  of  unques- 
tioned merit,  it  would  be  much  better  for  you  to 
diversify  your  investment." 

"Why?" 

"Because  by  a  proper  distribution  of  your 

37 


MR.         BROWN'S         EXPERIENCE 

funds,  local  or  accidental  causes  will  not  affect 
the  entire  investment.  It  is  also  wise  that  a 
proper  geographical  distribution  of  the  invest- 
ment be  made,  not  confining  it  to  securities  of 
companies  located  in  any  one  part  of  the  coun- 
try." 

Safety,  and         "You  speak  of  the  qualities  of  safety,  and 

Stability  of      stability  of  market  price.     Is  there  any  differ- 

Market  ence?" 

Price  "They  are  quite  different  and  are  frequently 

confused.  Safety  of  principal  and  interest 
means  assurance  that  the  maker  of  the  obliga- 
tion will  pay  principal  and  interest  when  due. 
Stability  of  market  price  means  that  the  obli- 
gation will  not  suffer  in  quoted  value.  Experi- 
ence has  shown  that  a  security  may  suffer  se- 
verely in  quoted  price  without  any  question 
arising  as  to  the  certainty  that  the  principal 
and  interest  will  be  paid  when  due.  Such  a 
fall  in  market  price  is  frequently  brought  about 
by  changes  in  financial  and  business  conditions, 
which  have  no  special  bearing  upon  the  security 
in  question,  but  affect  all  securities  equally. 
The  only  sure  way  to  guard  against  the  possi- 
bility of  severe  shrinkage  in  quoted  value  is  to 
buy  short  term  securities  of  established  worth, 
whose  near  approach  to  maturity  will  keep  their 
price  close  to  par." 

When  the  interview  was  ended,  Mr.  Brown 

38 


MR.        BROWN'S         EXPERIENCE 

made  purchases  of  certain  securities  with  which 
he  was  now  acquainted.  He  was  not  buying  in 
the  dark.  He  had  learned  a  great  deal  about 
the  bonds  that  he  finally  selected,  and  incident- 
ally was  convinced  that  the  good  judgment  of 
the  Company  could  be  depended  upon,  especial- 
ly since  the  securities  offered  were  those  in  which 
the  Company  itself  had  invested  after  thorough 
and  technical  investigation. 


M1 


CHAPTER  XI. 

TRUSTEE  AND  EXECUTOR. 

[R.  BROWN  had  formed  a  very  satisfac- 
tory banking  connection  which  consist- 
ently took  care  of  his  legitimate  needs ; 
he  had  gained  a  better  knowledge  of  modern 
trust  company  facilities  than  he  had  had  before ; 
and  above  all,  he  had  found  that  it  was  not  only 
convenient  but  distinctly  profitable  to  have  his 
various  financial  and  fiduciary  affairs  handled 
by  one  institution. 

Executorship  Therefore  it  is  not  surprising  that  when  he 
died  some  years  later,  the  Guaranty  Trust  Com- 
pany of  New  York  learned  that  it  had  been 
named  in  his  will  as  the  executor  of  his  estate 
and  had  also  been  appointed  the  trustee  of  cer- 
tain property  which  he  wished  to  have  held  in 
trust. 

We  learn  from  his  lawyer,  who  drafted  his 
will,  that  he  spoke  in  the  highest  terms  in  praise 
of  his  trust  company  and  how  he  had  been  posted 
up  to  date  concerning  matters  of  interest  to  de- 
positors. He  mentioned  having  received  from 
the  Company  its  pamphlet  on  the 

"NEW  INHERITANCE  TAX  LAW  OP  THE  STATE 
OF  NEW  YORK." 

40 


MR.         BROWN'S        EXPERIENCE 

which  led  him  to  inquire  into  the  advantages 
of  appointing  a  corporate  trustee. 

Now,  what  were  the  reasons  which  influenced 
Mr.  Brown  in  doing  so  ?  Let  us  quote  below  the 
conversation  which  he  had  had  with  the  Trust 
Officer  before  he  made  his  will. 

"Does  your  Company,"  he  asked,  "undertake 
the  entire  management  of  estates?" 

"Yes,  sir.  The  duties  of  a  trustee  are  per-  Trusteeship 
formed  by  us — a  corporate  trustee — in  exactly 
the  same  manner  as  by  an  individual  trustee. 
Our  Company  has  the  distinct  advantage,  too, 
of  never  failing  in  its  requirements  on  account 
of  absence  or  death,  because  we  always  have  an 
officer  available  to  carry  out  the  instructions  in 
the  will." 

"I  see  the  advantage.  Your  charges,  I  sup- 
pose, are  rather  high." 

"Not  at  all,  sir.  They  are  the  same  as  those  Fees 
allowed  to  individual  trustees,  which  are  regu- 
lated by  law;  on  the  principal  we  receive  5% 
on  the  first  $1,000;  2y2%  on  the  next  $10,000; 
and  \%  on  all  amounts  over  and  above  $11,000. 
On  the  income  we  receive  an  annual  fee  of  the 
same  rates  on  the  same  scale.  For  instance,  if 
the  principal  were  $100,000  and  the  income 
$6,000,  we  would  receive  a  fixed  fee  calculated 
as  follows: 

41 


MR.        BROWN'S         EXPERIENCE 


on  the  first  $1,000  ..........      $50 

on  the  next  $10,000  ......      250 

1%  over  and  above  $11,000  .....      890 


Total  $1,190 

One-half  of  this  amount  is  customarily  charged 
when  the  principal  is  received,  and  the  other 
half  when  it  is  distributed.  On  the  income  we 
would  receive  an  annual  fee  as  follows : 

5%  on  the  first  $1,000 $50 

2y2%  on  the  next  $10,000 125 


Total $175 

It  is  not  necessary  to  rent  safe  deposit  boxes,  as 
we  keep  all  papers  in  connection  with  the  estate 
in  our  own  vaults  at  no  extra  expense. " 

The  representative  pointed  out  the  strong  fea- 
tures of  the  Trust  Company  with  respect  to  its 
recognized  character  and  management,  and 
handed  him  a  newspaper  clipping,  a  fac-simile 
of  which  appears  on  the  next  page,  which  states 
that  a  person  no  less  eminent  than  a  Judge  of 
the  Supreme  Court  of  the  United  States,  the  late 
Chief  Justice  Fuller,  saw  the  wisdom  of  appoint- 
ing a  corporate  trustee  for  his  estate. 

42 


MR.        BROWN'S         EXPERIENCE 


tbar 

i  for 
fc    & 

'  the 
«hc 
and 

Kail  road 


the  wealthy  Chicago,  uut*,«wiltf  ... 

Doubtless,  the  selection  of  a  trust  cotnpan 
as  trustee  by  the  late  eminent  jurist  of  th 
United  States  supreme  court  will  make  a  pro 
found  impression  upon  all  men  of  wealth  an 
large  affairs  whose  greatest  concern  is  th 
faithful  administration  of  their  estates  afte 
death  in  accordance  with  their  wishes.  Ex 
ponents  of  the  trust  company  will  certainlj 
derive  a  peculiar  satisfaction  from  this  selec 
tion  by  the  late  chief -justice.  It  will  serve  a 
a  powerful  argument  for  our  wealthy  citizen 
and  render  more  popular  the  appointment  o 
trust  companies  as  trustee,  administrator,  ex 
ecutor  or  guardian,  instead  of  the  hazardou 
selection  of  individual  trustees  alone.  The  ob- 
ectioli  that  trust  companies  cannot  give  the 
attention  to  fajge  estates  which  individna 
:rustees  and  confidential  advisors  may  affon 
s  overcome  by  the  late  chief  justice  in  ap- 
>ointing  his  le<?al  counselors  associate  trus 
ee.  Eyen  though  this  provision  had  not  been 
made  there  would  «be  no  cause  for  doubts  as 
o  the  entire  ability  of  the  trust  company  ^  to 
>estow  that  personal  care  and  interest  which 
.he  trust  required.  Nevertheless,  in  many  ht 
itances  trust  companies  prefer  to  have  the  co 
>peration  of  the  family  solicitor  and  intimate 
:ounselor. 

A  trust  company's  highest  function  is  to  dis 
:harge  its  duties  faithfully  and  safely  as  trus- 
e/e  whether  under  the  terms  of  a  will  or 
under  corporate  trusts.  Success^in  this  direc- 
ion  will  be  attended  by  a  greatly  increasex 
volume  of  fiduciary  business.  The  court  and 
riminal  records  chronicle  almost  daily  the 
angers  wh^ph  are  unavoidable  in  appointing 
ndividuals  as  trustees  for  large  estates.  The 
ecord  of  trusteeship  made  by  the  trust  com- 
anies  of  this  country,  on  the  other  hand,  is 
n  inspiring  lesson.  But  most  important  is 
le  preservation  of  that  high  standard  of  man- 
cement  wh«ch  has  made  the  trust  companies 
f  the  United  States  an  example  for  all  the 
ivilized  nations  of  the  world. 

From  The  Economist,  July  30,  1910. 


. 

poses  ha 
Jul- 


P» 

a  > 

610. 

niimt 

loans' 

against 

§57,538. 

ago,  a« 

decrer 

tnnv 

grer 

in? 


the   To 
striimcr 
98,  tra 
mont' 
stru 


Will 
V.L.  i 
apart  tr 
on  tb 

ee* 
60 

h, 
.ide 
of  6 
raeir 

V 

it 


43 


MR.         BROWN'S         EXPERIENCE 

Duties  In  accepting  the  trust,  the  Guaranty  Trust 

of  Company  of  New  York  was  required  by  the 

Trustee  provisions  of  the  trust  and  by  law  to  be  pre- 
pared to  perform  such  transactions  as  the  fol- 
lowing : 

Invest  in  legal  securities; 

Collect  rents; 

Pay  taxes,  both  personal  and  real; 

Collect  coupons; 

Remit  interest  to  the  beneficiaries ; 

Give  accountings  to  the  Court; 

Distribute  the  principal. 

Amortization  Detail  work  was  required  which  is  very  often 
unknown  or  misunderstood  by  individual  trus- 
tees. Take,  for  instance,  the  matter  of  amorti- 
zation, relating  to  premiums  on  bonds.  In  this 
case  the  trustee  is  required  to  charge  all  pre- 
miums on  investments  against  income  and  not 
against  principal.  The  whole  of  the  premium 
is  not  charged  off  at  one  time  but  is  "amor- 
tized," that  is,  as  generally  understood,  the 
premium  on  a  bond  is  gradually  charged  off  and 
extinguished,  by  setting  aside  at  each  interest 
period  a  certain  amount  of  the  fixed  interest  the 
bonds  bear,  the  amounts  set  aside  being  so  cal- 
culated that  at  the  maturity  of  the  bond  they 
will  equal  the  premium  paid.  For  example,  if 
the  bond  were  a  5%  bond,  with  seven  years  to 

44 


MR.         BROWN'S         EXPERIENCE 

run  from  January  1,  1912,  selling  on  a  &%  basis, 
it  would  be  amortized  as  follows: 


Interest 
on  Par 
Value 

Interest 
earned 
4%  basis 

Amorti- 
zation 

Book 
Value 

Jan. 

1, 

1912     ( 

3ost  

..$1,060.53 

July 

1, 

1912... 

...$25 

$21.21 

$3.79 

1,056.74 

Jan. 

1, 

1913... 

...25 

21.14 

3.86 

1,052.88 

July 

1, 

1913... 

...25 

21.05 

3.95 

1,048.93 

Jan. 

1, 

1914... 

...25 

20.98 

4.02 

1,044.91 

July 

1, 

1914... 

...25 

20.90 

4.10 

1,040.81 

Jan. 

1, 

1915... 

...25 

20.82 

4.18 

1,036.63 

July 

1, 

1915... 

...25 

20.73 

4.27 

1,032.36 

Jan. 

1, 

1916... 

...25 

20.65 

4.35 

1,028.01 

July 

1, 

1916... 

...25 

20.56 

4.44 

1,023.57 

Jan. 

1, 

1917... 

...25 

20.47 

4.53 

1,019.04 

July 

1, 

1917... 

...25 

20.38 

4.62 

1,014.42 

Jan. 

1, 

1918... 

...25 

20.29 

4.71 

1,009.71 

July 

1, 

1918... 

...25 

20.19 

4.81 

1,004.90 

Jan. 

1, 

1919  ,  ,  . 

25 

20.10 

4.90 

1,000.00 

$350         $289.47         $60.53 

The  wisdom  of  Mr.  Brown  in  selecting  a  cor- 
porate trustee  can,  therefore,  be  readily  appre- 
ciated by  all,  but  inasmuch  as  this  story  was 
merely  to  treat  of  Mr.  Brown's  financial  con- 
nection, it  must  necessarily  end.  There  are 
numerous  other  ways  in  which  a  trust  company 
is  of  service  to  the  individual  and  the  foregoing 
is  but  an  example  of  one  man 's  experience.  How 
it  has  satisfied  thousands  of  others  would,  in- 
deed, make  an  interesting  tale.  Therefore,  we 
will  end  with  the  expression  that  for  a  good 
financial  connection  there  is  nothing  better  than 
an  acquaintance  with  such  an  institution  as  the 
Guaranty  Trust  Company  of  New  York. 

45 


SUBJECT  INDEX 


CHAPTER  PAGE 

IV.    American   Bankers'   Association 15 

XL    Amortization 44 

VI.  Basis  of  Loans 21 

X.    Bond   Department    30 

X.    Bond  Offerings 30 

VIII.    Bonds,  Exemption  of  Tax  on 27 

III.    Care  and  Custody  of  Securities 13 

I.    Certificates  of  Deposit 8 

VI.                "           "         "        20 

I.     Checking  Accounts    7 

VII.  Clean  Bills   25 

IX.    Collateral   Loans 28 

VII.  Commercial   Long  Bills 23  % 

VI.  Credit  Department    21 

VII.    Documentary  Sight  Bills 23 

X.    Equipment  Bonds    30 

XI.     Estates,  Management  of 41 

XI.    Executor    40 

VIII.  Exemption  of  Tax  on  Bonds 27 

XL    Fiduciary  Affairs   40 

VII.  Foreign  Bills   22 

VII.    Foreign  Department   22 

47 


SUBJECT  INDEX-Continued 

CHAPTER  PAGE 

IV.    Foreign  Money    16 

II.     Household  Accounts    11 

XI.    Inheritance  Tax  Law 40 

I.    Interest  on  Accounts 7 

IV.    Letters  of  Credit 16 

V.     Letters   of  Introduction 19 

VI.     Loans    20 

IX         "        29 

IX.    Loans  Against  Bonds 28 

IX.    Loans  on  Real  Estate 28 

V.     London  Office    18 

X.    Long  Time  Bonds 35 

IV.     Money  for  Travelers 15 

VIII.     Mortgage  Tax  Fees 27 

VIII.    Personal  Taxation    27 

IX.     Real  Estate,  Loans 28 

III.  Safeguarding  Securities  13 

IV.  Travelers'   Cheques    15 

III.     Trust  Department    13 

XI.         "                  "             40 

IX.    Trust  Funds,  Investment  of 28 

XL     Trustee 40 

XI.     Trustee's  Charges    41 

II.    Uptown  Branch    11 

X.    What  Constitutes  a  Good  Investment 36 

48 


J  C  &  W  E  POWERS  PRINT,   N  Y 


14  DAY  USE 

RETURN  TO  DESK  FROM  WHICH  BORROWED 

LOAN  DEPT. 

This  book  is  due  on  the  last  date  stamped  below,  or 

on  the  date  to  which  renewed. 
Renewed  books  are  subject  to  immediate  recall. 


LIBRARY  USE 

DFC19196Q 

._  .u-i  JL.    •*  n.   <*****»- 

OtC  "  9  raw 

LD  21A—  50m-4  '60                                     General  Library 
(A9562slO)476E                                     UnivefS{gr?l&lifarnia 

M1275Q3 


YC172720 

THE  UNIVERSITY  OF  CALIFORNIA  LIBRARY 


